Alibaba Group Holding Limited

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alidaba Group's June quarter of 2019 results conference call. At this time, all participants are on listen-only mode. Campus management prepared remarks. There will be a Q&A session. I would now like to turn the call over to Rob Lynn, Head of Investment Relations with Alibaba Group. And we apologize for any static or any disturbances. Please go ahead.

Hey, good day, everyone, and welcome to Alibaba Group's June quarter 2019 results conference call. Before I get started, I just wanted to see if people on the line can listen well. maybe you could take one question, operator, to make sure that someone on the line can answer that they can hear well, because there's some technical issue here on this side. Okay, I think we'll all proceed. Okay. Well, sorry about that. So with us today are Joe Tai, our Executive Vice Chairman, Daniel Zhang, Chief Executive Officer, Maggie Wu, Chief Financial Officer. This call is being webcast from our IR section of the corporate website. A replay of the call will be available on our website later today. Now let me quickly cover the safe harbor. Today's discussion will contain forward-looking statements. These forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest and results on Form 28 and other documents filed with U.S. SEC. Any further looking statements that we make on this call are based on assumptions as of today, and we do not undertake any obligation to update these statements, except as required under applicable law. Please note that certain financial measures that we use on this call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, marketplace-based poor comms adjusted EBITDA, non-GAAP net income, non-GAAP diluted earnings per share or ADS, and free cash flow are expressed on a non-GAAP basis. Our GAAP results and the consolidation of GAAP to non-GAAP measures can be found in our earnings specialist. unless otherwise dated, growth rate of all Metro Extension donors' costs refers to year-on-year growth versus the same quarter last year. With that, I will now turn the call to Joe.

Thank you, Rob. Thank you all for joining us. Alibaba's business continues to do well in an uncertain economic environment characterized by slower global growth and the trade war. In the last quarter, I explained why Alibaba is on the right side of all the solutions that could help us address issues in the trade war. If you haven't, please go back and read my speech from the last quarter. In this quarter, our core commerce business, comprised of China retail, wholesale, international commerce, logistics, and local consumer services, performed exceptionally well, with overall year-on-year revenue growth of 44% in this segment. The question that is invariably asked is, how does Alibaba's business, which is consumption-driven, continue to deliver robust growth despite challenges in the broader economy? I want to offer two reasons. Both are big secular trends happening in China that we have taken advantage of. First is demographics, and the second is the rapid pace of digitization. On demographics, China's US$5.5 trillion domestic consumption market is driven by two massive demographic forces. First is the emergence of a middle class of over 300 million people living in large cities. This affluent middle class population is almost as large as the entire US population, and their consumption needs and wants are approaching developed market levels. We have talked about the desire by these consumers to upgrade the quality of products they buy, especially the pursuit of brands and imported products. Alibaba's Tmall platform benefits tremendously from this ongoing trend, and we believe it will continue to be the leading choice for consumers looking for quality and consumption upgrades. The second massive demographic trend is the rise of urbanization affecting third, fourth, and fifth tier cities. Other than the major metropolitan areas like Shanghai, Beijing, and Shenzhen, China has more than 150 cities with a population of at least 1 million people. In aggregate, these lower tier cities and the surrounding townships have more than 500 million people with a consumption economy of 2.3 trillion US dollars. What is happening is the lower tier cities are urbanizing very fast. with a projected 300 million people that will move from rural areas into these cities in the next 10 years. The economy of these smaller cities will grow faster than the major metropolitan areas. We've seen projections that retail consumption from the lower tier cities and townships will triple from 2.3 trillion today to nearly 7 trillion US dollars by the year 2030. That is a compounded annual growth of more than 10% over a long period of time. In the current quarter, we grew annual active consumers of our China retail marketplaces to 674 million, of which more than 70% come from lower tier cities. Alibaba's China retail platforms, especially Taobao Marketplace, is very well positioned to capture the consumption demand from lower tier cities. Alibaba is uniquely positioned with the capability to capture opportunities of both the growing middle class in metropolitan areas and urbanization of military cities. This unrivaled capability is enabled by our multiple retail platforms that are highly trusted by consumers, extensive ecosystem of brands, merchants, and manufacturers, and AI-driven personalization technology. The second big secular trend I want to talk about is the rapid pace of digitization. Over the past 10 years, digitization of the Chinese economy has been driven by smartphones. Because of the convenient and always connected nature of mobile devices, more and more users are spending more and more time connected to the internet. This is giving the digital service providers, like ourselves, a great feedback loop to understand user trends so that they can rapidly and continuously improve their services. Under our all-in mobile strategy, Alibaba has become the leading player in digitizing commerce. We have developed the most sophisticated AI algorithms to serve consumers on our platform, which results in ever-improving user experience as well as increasing monetization opportunities. In the next 10 years, digitization of the economy will be further accelerated by the advent of 5G connection and proliferation of IoT devices. This will have far reaching implications for all industries and processes, including public services, manufacturing, supply chain, distribution, product development, and marketing. By developing these essential technologies of a more digitized world, such as data technology, cloud infrastructure, and machine intelligence, Alibaba is very well positioned to help businesses succeed through our new infrastructure for commerce. Now I turn to Daniel for his remarks.